3 Biggest IRA Investment Mistakes

Just so that no one reading this makes the same mistakes as I made, I will share with you my 3 biggest IRA Investment mistakes. I have had a rollover IRA for many years (well, about 20 years now) but it has not grown much at all.  It just sat there, doing nothing.

First, let’s see how S&P did in the last 10 years

From Nov 2013 to Nov 2023, S&P grew by 153% (from about 1,798 to about 4,559). Compounded annual growth (CAGR) for those 10 years is around 9.75%. Basically, it means a 10% return on investment annually.

Now, let’s see how I did in the last 10 years

My IRA portfolio had a CAGR of 2.56%! That is so sad I can only laugh. Basically, I didn’t even beat inflation. The average inflation rate for the past 10 years was 2.65%. Ah… this is painful. My IRA account barely grew. Now, I am being generous when I use the word grew because if you factor in the inflation of 2.65%, then my money didn’t grow, it actually shrank.

	S&P Index	Inflation	My IRA
2013	1,798	1	88,256
2023	4,559	2.65	113,657
CAGR	9.75%	2.65%	2.56%

By the way, if you are not familiar with IRAs (either Roth IRA or Traditional IRA) or if you are switching jobs and wondering what to do with the money you have in your 401k, then read my other information post on IRAs.

So, What were my 3 biggest IRA Investment mistakes?

Well, I am sure I did many things wrong. But, here are the 3 biggest mistakes that come to mind.

Acting Out of Fear

In 2020, when COVID hit the world, everyone started acting like it was the end of the world. The stock market crashed, S&P dropped by 32% in just a few days. We all got blindsided and saw our stocks pummel. I had a stock that was near and dear to my heart, Home Depot (HD). I held it since the 2009 Financial Crisis. It was a champion stock for me and over the years, I grew attached to it. But, when I saw the stock market crashing down (where I lost about 35%), I was gripped with fear and quickly moved to salvage what was left of the stock.

The HD share price went down like a brick from its high of 245 to about 150. I sold it at like 153 per share. Of course, I thought I did the right thing. Why not? I prevented it from further deterioration, right? And I said to myself I will just buy it back when it hits the bottom.

Little did I know… that the day I sold, was literally the bottom. I kept waiting and waiting to see it drop further. But the price never dropped again. Against my wishes, the price instead started to go up. I kept waiting and waiting, it kept going up and up.

In hindsight, this was a classic mistake that many people make. Acting on fear and trying to time the market. In less than two months, the price jumped back to the previous high of 245 and then it kept going higher and higher until it reached its peak of 415+.

This was one stupid move and a big lesson that I will never be able to forget.

Do not react to fear – or any other emotion

Let the dust settle. And if you decide to react, move slowly. S. L. O. W. L. Y. Unless you are day trading, it really doesn’t do any good to try and time the market. Don’t do what I did. By reacting to emotion, I missed out on one of the biggest gains in history.

Following The Herd

During the second half of 2020, when I saw technology stocks (remember FANG?) going to the moon, I realized again, painfully, that I had missed out. The prices of Facebook, Amazon, Netflix, Google were all way above my comfort zone already. It looked like it was a bubble ready to pop. But, Fear Of Missing Out kicked in, and I started to voraciously look for other tech stocks that I can get in on. I found and bought Alibaba.

Why Alibaba you ask? Well, everyone was saying it was the Amazon of China and given how far Amazon had gone, it seemed like it was only a matter of time for Alibaba to explode like Amazon. In fact, the Chinese market seemed like it had no limits and many people were saying a lot of good things about Alibaba’s cloud service; that it had the potential to 10x in the next few years. I was happy to put my money in Alibaba because I thought the future was certain and that Alibaba’s valuation was still attractive given its immense potential.

November 2020, after I missed out on FANG stocks and after the debacle on Home Depot, I bought Baba. I bought Baba for 274 dollars. I bought 10 shares, dropping down 2,745 dollars.

Greed was in the air. 🤑

Little did I know, I bought it at the peak. If you look at the graph below, it is clear that what I paid is literally at the very peak. It never went up. It just kept going down and down and down.

But, I kept buying and buying thinking that it would start going up any day. I bought another few thousand dollars worth in March of 2021, and a few thousand more later… ultimately I put about 12k into this stock. By the end of 2021, it was clear that something was fundamentally wrong.

Baba is perhaps one of my worst investments ever. After my initial purchase, there was so much bad news (CEO suddenly MIA, US/China intensifying trade war, Analysts downgrading Baba, etc.), but I just kept going. I really wonder why I kept holding onto this thing.

Do not follow the heard

So, what was my mistake? Basically, I followed the herd, fearing that if I didn’t get in, I would miss out again. And then, to make things worse, I held onto it because I was already too far in. Heck, I am still holding on… waiting for Baba to go up. I am currently sitting with an unrealized loss of 58.54%. My 12k is now valued at only 5k.

So, don’t do what I did, don’t go chasing after the fad, especially when the CEO goes missing for months.

Forgetting About It

My last mistake is… well, forgetting about the IRA account and leaving it unattended for years. According to a study from Capitalize, a financial technology company, there are around 24.3 million forgotten 401(k) accounts in the U.S. Yeah! Can you believe it? People actually forget about their money.

Well, I did. I also forgot about it for several years. And so the money just sat there in the Cash account, twisting in the wind, wasting away, doing absolutely nothing. I think it earned some measly 0.02%. Believe it or not, this happens frequently. So, please learn from my mistake and those of millions of other people who forgot about their 401(k) accounts.

Don’t forget about your investments.

In Conclusion

Looking at my mistakes in hindsight, I notice they are mindset issues. They were not because I didn’t keep up with the latest trends or because I failed to watch CNBC news. In fact, I read books, followed the news, and analyzed the company statements and charts.

However, none of them really made a difference. In fact, of all the things I did, watching the news, sorry to say, did more damage than good. They are mostly for entertainment. And, in the end, I realized that I was going at this all wrong.

Stock market is a place where millions and millions of people gather with one goal in mind: to make money. Everyone is there to make money. And if you are focused on short term tactical gains, then you are playing a zero-sum game, where one person has to lose in order for another to make money. You will eventually lose at some point and whatever hard earned gains you had will be wiped out.

Instead, you need to have the right mindset.

So, the right mindset is this: think long term and make methodical investments. Be like a business owner. Invest in a business (and not just speculate for quick wins). Then, you are playing on the side of perpetual growth. You are no longer playing the zero-sum game.

But because businesses go up and down what you need to do is you need to create a system. A system where you are putting in money regardless of the market situation. Every month or every two weeks, you just put in a fixed amount like 500 or 1,000 dollars.

Lastly, picking individual stocks is almost impossible. So, rather than trying to find the one stock, I think it’s best to go with broad based, low cost ETFs. I share the top 5 ETFs that you should consider for financial independence.

So, let me know what you guys think. Feel free to comment if you think there are other lessons that should be learned from these.